The effective federal funds rate has deviated miles away from its Federal Open Market Committee (FOMC)-set target over the last couple of months. I, along with really smart economists like James Hamilton, have fought to explain this phenomenon. But perhaps it cannot be explained because we don’t have all of the information!
A bit from Bloomberg (hat tip reader Stephen Saines): ”The Federal Reserve's efforts to rescue the U.S. from financial collapse risks the eclipse of the central bank's benchmark interest rate as the most important signal of monetary policy.
Record injections of liquidity have driven the overnight lending rate between banks to less than half the 1 percent target set by officials last month. The gap is shifting investors' focus toward the amount of money in the banking system as a better gauge of Fed intentions, something San Francisco Fed President Janet Yellen last month called ``a kind of quantitative easing.''” RW: Has the Fed moved toward a money growth target, rather than an interest rate target? William Poole – former President of the Federal Reserve Bank of St. Louis – accuses the Fed of not being transparent and shifting monetary policy without announcement. Although he does not speculate as to what the new policy is, he does state that by not announcing its new policy, the Fed is breaking the law.
According to Poole: “Something is happening at the Fed that has not been announced.”
Watch the video here (hat tip reader Paul Cox).
I will wait for the announcement because frankly I am confused.